Banking Glossary

Banking Glossary

We are going to present some popular banking terms which may help for general knowledge and for banking preparation.

Cheque:  It is the negotiable instrument which orders a bank to pay a specific amount of money from person’s account to the person whose name is written on it.  Cheque is issued upon the request of customer after opening account in the bank.   There are three parties which are involved in cheque

1. Drawer: Owner of the particular cheque( who signs and order bank to pay certain amount)
2. Drawee:  Bank, who are ordered to pay by drawer
3. Payee: Beneficiary of the amount

Requisition Slip: Slip that are required to re-issue cheque book which contains cheque issued date, cheque number.  Normally it is attached in cheque book and loss of this slip would charge certain amount for cheque issuance.

Electronic Cheque Clearing: ECC in short is an image based electronic cheque clearing and settlement system. The original cheques are scanned through ECC machine to create images and presented electronically through secured communication channels. Cheques are honored and deposited to another member on whom they are drawn.  For example:  Mr. Hari Khadka who have bank account in Nepal Bank Ltd  got cheque of Rs. 500,000.00 of Everest Bank Ltd   and Mr. Khadka can get that amount to his bank account without going to Everest Bank Ltd through ECC process.

Bounce Cheque:  It is the dishonored cheque due to insufficient fund in customer account. Generally we cannot bounce cheque if instrument is returned due to sign mismatched or any other error rather than insufficient fund.

Automated Teller Machine:  In short ATM is a device which allows customer to withdrawal cash without help of man. We can withdraw cash from ATM with the help of Visa Debit Card, SCT Card. It is very convenient to customer as it saves time.

ATM Card:  ATM card is a pin based card which is issued by bank to the customer and we can withdraw cash from ATM Machine with the help of ATM card. In addition ATM Card can be used in shopping mall, cinema hall, and restaurant etc. Cash debited from customer account instantly after we used the ATM Card.

Credit Card: Credit card is also issued by bank to the specific customer upon their request. It is like a loan which gives credit amount to the card holder for specific period of time.  Cash debited from customer account after certain period of time and unpaid of specific amount attracts interest to card holder.

Know Your Customer:   KYC in short is the process of gathering important data, information about the customer of the bank which aims to know them better. Bank will let us to fill up form which is called KYC form in which recent picture of customer, their contact number, contact address, family details, income level are taken along with address verifying document. KYC helps to establish and verify identity of the customer, it also assess and monitor risk associated with them.

Bank Rate:   It is the rate of interest charged by central bank to bank and financial institution upon their borrowing.  For example:  Century Commercial Bank Ltd (CCBL) borrow cash from Nepal Rastra Bank (NRB) then NRB shall charge bank rate to CCBL.

Base Rate: in short BR is the minimum rate of interest set by central bank below which banks are not allowed to flow loan to customers.  Bank will charge interest rate to customer like BR+2% which means premium 2% is almost fixed in loan tenure and BR are subject to change quarterly.  For example: Base rate of Nabil Bank Ltd is 8.00% then bank is not allow to provide loan with 8.00% to customer.

Core Capital-Cum Deposit Ratio: CCD ratio in short is the limitation set by central bank to issue loans. In Nepal, CCD ratio is 80% which means banks are only allowed to flow loan up to 80% of core capital deposit. For example: if bank has Rs.1000.00 as a sum of core capital and deposit then bank can only provide Rs.800.00 as a loan and remaining Rs.200.00 should be held as liquidity.

Cash Reserve Ratio: CRR in short is the percentage of money to be kept by all the banks and financial institutions in the form of cash. For example:  If CRR is 4%, the bank has deposit of Rs. 100.00 Lac then bank has to maintain Rs. 4.00 Lac i.e 4% of total 100.00 and bank shall get rest 96.00 Lac for lending.

Statutory Liquidity Ratio: SLR in short is the reserve requirement set by the central bank that bank has to maintain in form of cash, gold and other securities prescribed by central bank.  For example: if SLR is 10%, the bank has deposit of Rs.100.00 Lac then bank has to maintain Rs.10.00 Lac  i.e 10% of total 100.00 and bank can use 90.0 for banking purpose.

Teller: He/she is the staff of the bank who accepts our cash and gives cash on our demand.